The current bout of inflation, which has been accompanied by high food inflation, is disturbing as it hurts the poor and the low-income strata of society the most, said Deepak Mohanty, Executive Director, Reserve Bank of India.
While the major policy actions to augment food supply may not be in the domain of monetary policy, it may have to perform a careful balancing act so that a sharp action does not choke supply response and a weak response hardens inflationary expectations, he said.
Arguably, the trigger for high food inflation emanated from the drought of 2009-10. But good rains in the following years have failed to douse food inflation.
In this regard, Mohanty said global food prices rose and India’s exchange rate depreciated, which exacerbated the domestic food inflation. But subsequent moderation in global food prices has not dampened the food inflation.
“Of course, food inflation has come off its peak, but its persistence around double-digit levels suggests that that there must be something more fundamental at play,” said the RBI ED in his address at a Mumbai college.
Mohanty pointed out that there is greater allocation of expenditure away from cereals towards other food items. Hence, demand seems to be one of the factors driving the prices of protein and vegetables.